– With the introduction of PS3280 PSAB has withdrawn existing Section PS3270, solid waste landfill closure and post-closure liability.
– Under PS3280, obligations for the closure and post closure care of solid waste landfill sites are recognized earlier than presently under PS3270, as the accounting treatment changes from incremental recognition of liability based on usage to recognition on acquisition, construction, development or normal use. This will result in an earlier increase in net debt. The recognized cost of assets would increase because asset retirement costs associated with tangible capital assets in productive use would be added to its carrying amount rather than expensed (as currently done under PS3270).
– While PS3280 includes in scope expected contamination related to a tangible capital asset controlled by the public sector entity, PS3260 contaminated sites addresses unexpected contamination related to the tangible capital asset.
– Some examples of asset retirement obligations which fall under scope of proposed PS3280 include:
- – buildings with asbestos
- – end of lease provisions (from a lessee perspective)
- – fuel storage tank removal
- – removal of radiologically contaminated medical equipment
- – wastewater or sewage treatment facilities
- – Firewater holding tanks
- – Septic beds
- – closure and post-closure obligations associated with landfills
– Under PS3280, an asset retirement obligation should be recognized when, as at the financial reporting date, ALL of the following criteria are met:
- – there is a legal obligation to incur retirement costs in relation to a tangible capital asset
- – the past transaction or event giving rise to the liability has occurred
- – it is expected that future economic benefits will be given up
- – a reasonable estimate of the amount can be made
– Public sector entities will be required to capitalize asset retirement obligations associated with fully amortized tangible capital assets, except in the following instances:
– asset retirement obligations associated with unrecognized tangible capital assets should be expensed
– asset retirement obligations associated with tangible capital assets no longer in productive use should be expensed – The estimate of a liability should include costs directly
– The estimate of a liability should include costs directly attributable to asset retirement activities.
Getting a start on PS3280
– Public sector entities should start considering which asset retirement obligations may fall under scope of the proposed PS3280.
- – review active and inactive tangible capital assets to identify those with retirement obligations. Consider solid waste landfills and contaminated sites which may meet the PS3280 recognition criteria
- – reconcile this inventory with the complete tangible capital assets listing and the site inventory for contaminated sites
- – engage functions outside of finance (particularly public works and engineering)
- – Consider implications of transitional options.
- – Identify opportunities to collaborate with peer entities on assets identified as in scope for PS3280, and benchmarks for measurement of retirement obligations.
Contact us
- Bailey Church
- Partner, Audit
- T: 613-212-3698
- E: bchurch@kpmg.ca
- Email Bailey to join his Public Sector Accounting newsletter distribution list.
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